Posted
by
timothy
on Tuesday June 24, 2014 @11:10AM
from the but-you-promised-me-free-money dept.

mpicpp (3454017) points out this story illustrating the problem of betting on the differential between the price of deliverable bitcoin-mining hardware and the price of bitcoin itself: Yet another Bitcoin miner manufacturer, CoinTerra, now faces legal action for not fulfilling an order when it originally promised to. CoinTerra is the third Bitcoin-related startup to face litigation for breach of contract and/or fraud in recent months. The CoinTerra lawsuit was filed in late April 2014 by an Oakland, California-based man seeking to be the lead plaintiff in a proposed class-action lawsuit. Lautaro Cline, the suit alleges, purchased a TerraMiner IV in October 2013 for delivery by January 2014. The company promised, he claims, that this miner would operate at two terahashes per second and would consume 1,200 watts of power. It did neither. However, Cline's suit also claims that CoinTerra did not deliver the miner until February 2014, and it "operated well below the speed advertised and consumed significantly more power than CoinTerra represented, causing Plaintiff to suffer significant lost profits and opportunities."

"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money! Now since I have you here, I'd like to sue Money Tree, Inc. whose shrubbery is also performing woefully."

I'm not saying his case is without actual merit. I just think it's hilarious. I do doubt, however, that beyond being made whole for the purchase price that the plaintiff will be able to demonstrate any actual damages. Mining is speculation, whether it be gold or Bitcoins. You can't attach a price tag to "if only."

It is absolutely not speculation, and is governed by mathematically laws. Furthermore, there will be existing data for the delta between delivery date and now; data on network difficulty, which gets harder and harder. You literally make all your money in the first month or 2 of buying a mining rig. It is worthless 6 months later, and won't provide ROI even 1 month late.

But, y'know, keep pretending things you haven't investigated the details on are speculation, if that's an easier way for you to understand

Although if it is a class-action suit, then presumably there were a large number of people that also didn't get their X GH/s miners by Y date, all of whom could have generated Z bitcoins.

But wait! If they had all been mining that whole time, then the difficulty would have changed, since they would have constituted a non-zero addition to the global mining capability. So the amount that they "missed out" would be lower.

Anyone have any idea what % of global hashing power the miners in question should have be

It is speculation because the price of bitcoins jumps around massively. Gold is nowhere near as volatile as bitcoins.

It is not speculation. You can look up the difficulty and show what the man would have been able to mine had he gotten the device on time and as advertised.The price of bitcoins doesn't matter - you order CoinTerra to pay those lost bitcoins.CoinTerra won't have the bitcoins on hand to pay up, so lawyers will then bitch and fight over how to value those bitcoins in USD based on market rates at various times between the promised delivery date and now. It doesn't matter though - they won't have the cash to pay up either.

CoinTerra won't have the bitcoins on hand to pay up, so lawyers will then bitch and fight over how to value those bitcoins in USD

Since they can be obtained on the open market; the court can order CoinTerra to buy the coins, and deliver the coins, and give them a 2 week deadline for doing so.

And the defense will say that those bitcoins aren't the same as the bitcoins he would have mined.Valuation is determined at the time of the loss, not at the time of the suit.The prosecution will say that this loss is ongoing, while the defense will say the plaintiff had a duty to minimize losses as he became aware of them.That is, as soon as you had this thing in your hands and it ran at X hashrate for Y power draw, you knew not to count the coins you hadn't mined yet, and your losses were thus limited to a

No, you can only look up and guess what he would have made. You also have to figure in the results of all the other delayed cointerra orders coming online a couple months earlier. Those 2 TH wouldn't generate nearly as much if 2 PH of other hashing powe came on in December, followed by 4 PH in jan and 8 in feb.

Miners face many risks. The value of bitcoin. The number of other machines coming online. And the likelihood of receiving their machine, which is often only in the planning stage when they order it.

It's speculation because it is possible to spend outrageous amounts of money on equipment and there is no guarantee that you'll see any return. There is no payout for "best effort". It's not like a job where you turn on the machine and you get paid for the number of hours that the machine runs. It's a race in which you have no way of accurately knowing who you're racing against.

As long as the purchaser was looking at the ratio of NPV of the future Bitcoin earnings to the cost to purchase and operate in $ to justify his purchase then there is no problem with asking for a refund. The exchange risk on the ratio of Bitcoin to USD is all on the buyer though.

It's not a coin toss. Your metaphor is not a model. You don't understand details, so you simplify. Which is understandable, until you try to present your simplification as reality. That's just douchey. Most pools payout based on effort. Whatever you put in, you get out. The amount is proportional to your computing power. If you don't get the power you paid for, you lose a measurable amount of money. No coins are tossed. Network difficulty is the only thing that ever changes, and it's calculatable and pred

I understand quite well that with bitcoin you're competing to complete a proof of work for a block before anyone else, and there is no guarantee, there is no prize for second place, you have no way to accurately gauge who you're competing against, and the prize itself has a volatile value. Clearly our definitions of "speculation" differ wildly.

So yes, just like a coin toss is governed by forces that can be modeled mathematically but are so ridiculously complicated that there's no practical way to do it in t

Except for the fact that they aren't, and there are reasoned, logical, and very verifiable ways to predict, yea -- your gross oversimplification is totally accurate! But I know how easy it is to pretend the details are mysterious when you haven't spent 100+ hrs doing your own research and investments.

Why didn't I buy the mining rigs? Because the calculations demonstrated that ROI would only be achieved within the first month, and I knew a mining rig manufacturer could just give it to me late. So I didn't

Especially as each and every bitcoin mining machines worsens the odds for all existing bitcoin mining machines and for the next machines to be produced, so rapidly diminishing results. Now that further complicates matters as you could incorporate all potential computer processing power of the entire globe into the bitcoin mining calculations and the huge alteration of odds. So damages can only be the value of the machine and the extra electricity used which in turn would be subject to ambient environmental

Exactly. If it were a mathematically proven safe bet, the companies making the mining equipment should be sued by their shareholders for not taking those machines and putting them into production themselves. They'd be doing the owners a great disservice by not taking the guaranteed profits.

Actually, I was expanding on your original post, since "well, we have your money now, so you're screwed" appears to be growing in popularity as an excuse for poor customer service.

But yea, he's going to be hard-pressed to show actual damages; I mean, I guess he could bring up the price differential of Bitcoins between Month A and Month B, and show how much income he could have made if his rig had arrived on time and functioned as advertised...

I'm not saying his case is without actual merit. I just think it's hilarious. I do doubt, however, that beyond being made whole for the purchase price that the plaintiff will be able to demonstrate any actual damages.

Since mining is to produce Bitcoins; he might pursue specific performance --- in the form of requiring that they deliver to him an amount of actual Bitcoins he would have mined with timely delivery of a unit meeting specifications, which is easy to calculate; instead of liquidated damag

Kinda like how if I promised to build you a fence for X dollars by Y date, and fail to meet the agreed upon pricing and schedule, well, that's your fault for trusting me, now isn't it?

Kind of. If you didn't do your DD. In practice, the most you would be liable for would be the X dollars I paid you upfront to build the fence, plus perhaps some miniscule extra amount in interest and costs required to find another fencebuilder.

It doesn't matter if I had a profit-making idea that would have made me milli

Depends on how well you write your contracts, back when I did programming as a contractor, the contract dealt specifically with liability and damages - basically boiled down to, the customer could sue, but would never be able to get more than actual damages and never more than the module / sub routine cost to have developed. Granted, this wasn't in the US, so liability laws and statuary damages etc. are vastly different here.

Well if you were to mine for gold, vs bit coins what is the difference.

Gold is just a piece of medal, while has some nice properties to it, its value is that it is a rare element. Bit Coins are from a unique hash combination which are rare to generate and is getting harder and harder to find. It is just the same thing.

The issue is mining isn't free, it takes labor and power to crunch the data, so if they told people with you 100,000 USD investment I can get you 200 bit-coins valued at 120,000 USD. Howe

Well if you were to mine for gold, vs bit coins what is the difference.

Gold is just a piece of medal, while has some nice properties to it, its value is that it is a rare element.

Actually, it is not that rare, it's just more expensive to extract at the current value so much is left unextracted. It's value is that people accept it as a liquid store of value; so they are willing to exchange cash for gold.

Bitcoin is reaching the cost / value crossover; its volatility and lack of liquidity raise questions about it's value and wetehr people will accept it as a store of value.

Ever have a look at your bank's investment notices? "Investment and insurance products: Are Not FDIC Insured, Are Not Bank Guaranteed, May Lose Value, Are Not Deposits, Are Not Insured by Any Federal Government Agency, Are Not a Condition to Any Banking Service or Activity." Investment carries a risk of lack of return. When you invest you may lose your money, including your principal.

Now, the people you invest with have a duty to do what they say, they can't just take your money and spend it on hookers and

If you order a processing system to spec and it doesn't meet the spec and/or doesn't arrive on the contractually bound delivery date, you absolutely have a case. The real question is if they can leverage its intended use to argue for damages above the cost of the equipment.

Only if there's some kind of spec guarantee. If we have a contract where I promise to deliver a system of X spec to you for Y dollars then yes, I have to do that, or refund your money. However if I say "I'm trying to make a new system, here's the specs we are aiming for, want to invest?" You can't then get mad if it falls short, not everything ends up being the same from design to implementation (ask Intel with regards to NetBurst).

Bad analogy. Say I buy a freezer, which the manufacturer advertises as being -20C using 10W but it's only a -10C freezer and uses 20W. I would be entitled to my money back if I notify them I am not happy with the goods within a reasonable time, or after a period a part refund as I have had some use of the device.

It's just trade descriptions and sale of goods not investment. That the device is a magic money machine isn't actually relevant at all, someone sold a device saying it could do X, purchaser has foun

They sold the machine for delivery in December, for $12,000. Then delayed to January (with customer agreement), then didn't actually deliver until February/March. In march they lowered their price to $2,000... which was a reasonable and competitive price for that date.

So they failed to deliver more than 30 days from the purchase date and after a prearranged time. A full refund is what they should be entitled to. Distance Selling Regulations for the win (in the UK/EU at least).

They had a contract with the buyer and did not fulfill their half. Of course the buyer's recourse in this should probably be limited to the price of the machine, not any "missed opportunities".

Buyers should ask themselves why anyone would sell a money printing machine. If it was profitable they're going to use it for themselves, or use it until the bitcoin difficulty gets just to the point where it's marginal and sell it.

Why would anyone sell shovels? If it was profitable, they'd dig everything themselves.
Actually, the real profit is in licensing the shovels with a per-scoop fee.

It's about balancing risk. Some people prefer taking a shot at mining. Some people prefer selling shovels. Some people probably do both.

Actually, it's about capital. If you lack access to it then once you're done making the money printer you don't have enough left to run it. So you sell the damn thing at a slight profit and build yet more, relying on the prior aggregation and assembly of capital in a useable form to produce something of value (more capital).

Buyers should ask themselves why anyone would sell a money printing machine. If it was profitable they're going to use it for themselves, or use it until the bitcoin difficulty gets just to the point where it's marginal and sell it.

The problem is, there's nothing to limit this logic to Bitcoin. So either the logic is faulty, or trade - and, by extension, economy - is inherently bad since it means one party is always getting screwed. Which very well might be the case, but the implications go well beyond Bit

Some people are better at making the machines than running a business based on the output of the machine.

Its the same reason Catepiller makes mining equipment but doesn't mine gold, they know how to make heavy equipment. Building the equipment is different than running a successful business using the equipment.

The reason why they sell it is to offload risk. Some businesses don't want Bitcoins, but they don't mind selling tools to mine them, even if there is potentially more money to be made off just mining them. Risk management and speculation play a strong role either, where the buyer is willing to take on all the risk of mining.

Every investment is, in one way or another, a "money generation machine". This is exactly how an investor thinks about their investment, minus the "free" part because they subtract the opportunity cost of investing in that thing instead of in something else.

The fact that the machine was for mining bitcoins, or the value of bitcoins, or the existence of bitcoins, is entirely irrelevant. CoinTerra promised a computer with certain specs (2 terahashes per second and 1,200 watts, ie 1.67 gigahashes per watt) at a certain time (January 2014), and delivered a product with inferior specs (according to the plaintiff, 1.6 terahashes per second and 2,100 watts, ie 0.76 gigahashes per watt) at a later date (February 25, 2014). People who pre-ordered the product and pre-pa

According to the article, the TerraMiner IV had a pricetag of $13,999, which the filer of the lawsuit clearly paid. A single bitcoin is (and correct me if I'm wrong here) around $500. For this guy to break even, not counting the power that thing drains, he would need to mine at least 28 BTC. From what I understand, mining that kind of BTC, even with an extremely high-powered miner, is not an easy task. It seems like he would've lost money even if the machine had performed at the specifications listed by the company.

At current difficulty, (13.4Bil) a 2TH miner consuming even 1500W, would generate about 0.0747BTC/24 hours. Even at 15.4Bil (~15% increase?) you're still looking at 0.0650BTC/24 hours. Back in January, the market was more like ~2Bil difficulty, which the same device would have brought in ~0.5029 BTC/day. (or a ~2 week ROI!) Now I don't agree with the guy really, Feb was up to ~2.5-3Bil, which at the worse end was still ~0.3353 BTC/day. (still only ~31 days break-even!)

The real profit to be found are with the people selling these ASICs. The best analogy I've seen compares it to people selling shovels during the gold rush.

The fun part is that a lot of these miracle mining rig builders are suspected of using those new rigs themselves for awhile before finally delivering them. So it's kind of like people selling used outdated beat-up shovels during the gold rush. The scam seems to be:

Pre-sell insanely powerful mining rigs

Use pre-sale money to order hardware and build rigs

Mine for a month or two with awesome rigs while delaying delivery to buyers

!!!PROFIT!!!

Newer, faster hardware becomes available

Pre-sell rigs built with this month's even better hardware

Finally ship last month's batch to the buyers

Repeat

Just another pyramid scheme and there are still suckers falling for it.

It's a bit like those crystal ball con artists. Know the kind? That tells you the lotto numbers of next week?

I always wonder the same that I wonder in this case: If that actually worked, why do they tell you (or, in this case, build it for you) instead of simply using it themselves? It's not like you need to invest a lot of work or have to have intimate know-how that the maker of the item doesn't have to mine bitcoins. It's basically "pump electricity in, take hashes out". If I could build such a "miner" that produces more bitcoins than it costs in electricity, why would I be so stupid and sell it to you instead of renting a rack somewhere and let it do it for me?

Specialization and supply chain. People who build rigs get their profit up front and can pour the money strait back into facilities, equipment, parts, etc. It is a pretty solid strategy for growing a business and would likely work better then running the rigs themselves.

Why do you think it came late? They probably had it running by the promised date, realized they'd make more money keeping it, kept it, then tried to sell it once it couldn't provide ROI. Of course they deserve to be sued.

Why do you think it came late? They probably had it running by the promised date, realized they'd make more money keeping it, kept it, then tried to sell it once it couldn't provide ROI. Of course they deserve to be sued.

Well, except for the part where it didn't meet the spec'd peformance goals and sucked down more power than expected as a bonus...

Because it is a risk. The company making the machines gets an upfront sale with a good profit margin. The risk taker is hoping that bitcoins stay above some value and hydro does not go up, and he does not spill coffee on his server, and, and, and.

Theoretically, both ventures had (could of had) a good profit margin and were worth undertaking, and the people who undertook the machine building had machine building skills and most likely more aversion to risk, while the miner had skills more suited to that and more propensity for risk.

Theoretically, both ventures had (could of had) a good profit margin and were worth undertaking, and the people who undertook the machine building had machine building skills and most likely more aversion to risk, while the miner had skills more suited to that and more propensity for risk.

Let's not forget the small matter of capital. If you sell machines, and require payment upfront, you can then use that payment to pay for the components. That way you can cash in on the Bitcoin boom without a large amount

For the same reason that a bank is willing to loan you money to start a business! Why would they be so stupid as to do that, when they could just keep the money and start the business themselves? And for the same reason that some companies will sell meatspace-mining equipment that digs real iron ore out of mountains, instead of actually buying mountains and using the equipment themselves?

The mining-rig-producer knows for a fact that they can produce rigs for $X and sell them for $Y > $X. They pocket t

I think a better analogy for comparing bitcoin mining to gold mining would be: Imagine if I were to sell you an automated power shovel and promised it would dig 10 tons of dirt per hour with fuel consumption of 50 gallons per hour. If my device didn't live up to those advertised specs, you would have a valid complaint. Reasonable damages would be derrived from difference between what you made and could have made. If in actuality you were able to shovel 5 tons of dirt per hour while still consuming 50 ga

Not only that but, think of it from a gamer perspective, what makes more sense.... to ask for as much as you can reasonably justify and let the court tell you they need to knock a few items off or bring them down because they don't think you are entitled to THAT much..... or ask for exactly what you think they might give you, and see that whittled down? IANAL but it seems unlikely that a court would award you more than you claimed your damages were, even if it appeared justified.

You mean there are venture capitalists who can't do basic risk assessment?

That's how these miner manufacturers operate. It is relatively low and well-understood risk to sell physical goods. We have X orders, and can produce Y units each month. The reason they don't mine bitcoins themselves is that they don't want to take that risk. They sell the machine, and they get their money. They sell more machines, they get more money. It's simple, it's safe.